According to a senior analyst at Moody’s Investors Service, the Chinese government is being forced to implement previously untested policies in its effort to bring in stimulus to its slowing down economy which has been compounded by the ongoing trade war with the United States.
While it is being considered that for a major part of the year, the Chinese economy has fared well but in recent months, there have been more than one indication that the economy is slowing down such as exhibited by lowering of production metrics and fall in export orders.
The Chinese economy, the second largest economy of the world, has seen witnessed steady and record growth for its economy for decades but in recent months it has been facing headwinds in a slowdown of its domestic consumption even as the trade war with the US is yet to completely show its impact on the economy. There has been additional pressure on eth Chinese economy because of the tariff war.
“We see growth in China slowing to 6 percent,” Christian Fang, an assistant vice president-analyst at Moody’s, said during a television interview on Thursday. “I think the bigger issue for us is that policy trade-offs have increased in China. On the one hand, there is this broader campaign of de-risking, deleveraging, but policy also seems to be shifting slightly towards growth — supporting growth.”
“Some of the tools in the policy response they have meted out are untested,” he added. “Tax cuts, for instance, we don’t know what the businesses and the consumers — how they would respond to the tax cuts,” he said.
A number of measures to stimulate its economy has been announced in recent months by China.
A new measure of granting more tax breaks to small firms is on the anvil this tome and it is the latest in the series of measures taken by China for its economic growth, reported Chinese state media. An increase in the tax threshold and substantial cuts in business income tax rates are part of the latest measure. According to Xinhua, the aim of the measure is to cause a savings of a total of 200 billion yuan ($30 billion) each year for small and micro firms in the economy.
And an announcement to reduce the amount of reserves that banks are required to hold by 1 percentage point starting this month was made by the People’s Bank of China last Friday. This measure would means that there would be more money at the hands of the banks for providing loans for businesses. A new tool to encourage commercial banks to give out more loans to smaller firms was introduced by the Chinese central bank in December.
“Since mid-2018, China’s authorities have eased policy through targeted liquidity measures, taxation changes and infrastructure spending, which will shore up growth,” Fang and his colleagues at Moody’s wrote in a Jan 10. report.
“However, designing and implementing policy that simultaneously buffers the shock of the US trade tariffs and potential further restrictions while continuing deleveraging and derisking without triggering too sharp a slowdown in growth, poses complex trade-offs,” they added.
(Adapted from CNBC.com)